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A company is considering the purchase of a $200,000 piece of equipment. The equipment is classified...

A company is considering the purchase of a $200,000 piece of equipment. The equipment is classified as 5-year MACRS property. The company expects to sell the equipment after five years at a price of $30,000. The relevant tax rate is 20%. What is the after-tax cash flow from this sale?

MACRS 5-year property

Year Rate

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

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Homework Answers

Answer #1

The after tax cash flow is computed as shown below:

= Sales value - tax expenses

Book value is computed as follows:

= Purchase price - Depreciation till year 5

= $ 200,000 - (20% + 32% + 19.20% + 11.52% + 11.52%)

= $ 200,000 - 94.24%

= $ 11,520

Profit on sales is computed as follows:

= Sales value - book value

= $ 30,000 - $ 11,520

= $ 18,480

So, the operating cash flow will be as follows:

= Sales value - Profit on sales x tax rate

= $ 30,000 - $ 18,480 x 20%

= $ 26,304

Feel free to ask in case of any query relating to this question

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